Taxes you pay as a sole trader or partnership
As a sole trader or partner, you will be taxed on the profits you make from your self-employment. In a partnership, you would be taxed on your share in the partnership profits.
The good news is that the first £7,475 you earn (2011-12 rate shown) is tax free. This is known as your personal allowance. The next amount of income you earn, up to £35,000 (2011-12 rate shown) is taxed at 20%, and anything above that is taxed at 40%. There are some special rules for high earners (over £100,000), but these are outside the scope of this blog.
You are also required to pay Class 2 National insurance of £2.50 per week, and this is collect in bi-annual instalments on 31st January and 31st July of each year.
Class 4 National insurance is due on your prpfits from self-employment and this is 9% of all profits over £7,225 (over £42,475 you will pay 2% Class 4 NICs).
Your income tax and class 4 national insurance payments are due on 31st January following the end of the tax year, and if you are making payments on account, you will have additional payments to make on the 31st July following that.
Taxes you pay as a limited company
As a limited company, you will be required to pay corporation tax on the profits of the company. Broadly this is the income you make less the expenses you incur, but you may need an accountant to ensure that the profits are correctly calculated.
Companies do not have a personal allowance, so tax is payable on all your profits. The rate for small companies (with profits under £300k in 2011-12) is 20%. In addition to this, you will have to pay tax personally on any money you have taken out of the business. Directors often take a mix of salary and dividends as this is considered to be the most tax effective method of withdrawing funds from a company, and your accountant will be able to advise you on the best amounts to take out.
If you would like any advice in this area or any other areas of accounting or tax, please contact me on 01767 260282 or amy@tayloraccountancy.net, www.tayloraccountancy.net.
Amy Taylor Accountancy takes every care in preparing material to ensure that the content is accurate and up to date. However no responsibility for loss to any person acting or refraining from acting as a result of this material can be accepted by Amy Taylor Accountancy. You should always ask your accountant to give you specific advice which is tailored to your personal and business circumstances and properly implemented.
